[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 257 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 257

 To amend the Commodity Exchange Act to improve the Act, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            February 4, 1997

   Mr. Lugar (for himself, Mr. Harkin, and Mr. Leahy) introduced the 
 following bill; which was read twice and referred to the Committee on 
                  Agriculture, Nutrition, and Forestry

_______________________________________________________________________

                                 A BILL


 
 To amend the Commodity Exchange Act to improve the Act, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Commodity Exchange Amendments Act of 
1997''.

SEC. 2. TREASURY AMENDMENT.

    Section 2(a)(1)(A) of the Commodity Exchange Act (7 U.S.C. 2) is 
amended by striking clause (ii) and inserting the following:
                            ``(ii) Treasury amendment.--
                                    ``(I) In general.--Nothing in this 
                                Act shall be deemed to govern or in any 
                                way be applicable to transactions in or 
                                involving foreign currency, security 
                                warrants, security rights, resales of 
                                installment loan contracts, repurchase 
                                options, government securities, or 
                                mortgages and mortgage purchase 
                                commitments, unless such transactions 
                                involve the sale thereof to the general 
                                public for future delivery conducted on 
                                a board of trade.
                                    ``(II) Other agencies.--Nothing in 
                                subclause (I) shall affect the powers 
                                of the Securities and Exchange 
                                Commission, the Office of the 
                                Comptroller of the Currency, the Board 
                                of Governors of the Federal Reserve 
                                System, the Department of the Treasury, 
                                the Federal Deposit Insurance 
                                Corporation, any agency of State 
                                government with the authority to 
                                charter, regulate, or license banks, or 
                                any State insurance regulatory agency, 
                                under this Act or any other provision 
                                of law.
                                    ``(III) Definitions.--
                                            ``(aa) Board of trade; 
                                        foreign exchange 
                                        transactions.--The term `board 
                                        of trade', as applied to 
                                        foreign exchange transactions 
                                        described in subclause (I), 
                                        shall include unsupervised 
                                        entities that are engaged in 
                                        the systematic marketing of 
                                        standardized, non-negotiable 
                                        foreign currency transactions 
                                        to retail investors.
                                            ``(bb) Board of trade; 
                                        government securities.--The 
                                        term `board of trade', as used 
                                        in subclause (I), shall not 
                                        include a government securities 
                                        dealer or government securities 
                                        broker, to the extent the 
                                        dealer or broker engage in 
                                        transactions in government 
                                        securities, as the terms 
                                        `government securities', 
                                        `government securities dealer', 
                                        and `government securities 
                                        broker' are defined in section 
                                        3(a) of the Securities Exchange 
                                        Act of 1934 (15 U.S.C. 78c(a)).
                                            ``(cc) General public; 
                                        retail investors.--The 
                                        Commission shall define the 
                                        terms `general public' as used 
                                        in subclause (I) and `retail 
                                        investors' as used in item 
                                        (aa), taking into account, to 
                                        the extent practicable, section 
                                        4(c)(3) of this Act and section 
                                        35(b)(2) of title 17, Code of 
                                        Federal Regulations. In 
                                        carrying out the preceding 
                                        sentence, the Commission shall 
                                        not include in the definition 
                                        of `retail investors' a natural 
                                        person with total assets that 
                                        exceeds $10,000,000.
                                            ``(dd) Option.--For 
                                        purposes of this clause, an 
                                        `option' shall be considered to 
                                        be a transaction at the time it 
                                        is purchased or sold and at the 
                                        time, if any, that it is 
                                        exercised.
                                    ``(IV) Emergency authority.--
                                Nothing in this clause shall restrict 
                                the powers of the Commission under 
                                section 8a(9) as they apply to 
                                designated contract markets.''.

SEC. 3. HEDGING.

    Section 3 of the Commodity Exchange Act (7 U.S.C. 5) is amended in 
the fourth sentence by striking ``through fluctuations in price''.

SEC. 4. DELIVERY POINTS FOR FOREIGN FUTURES CONTRACTS.

    Section 4(b) of the Commodity Exchange Act (7 U.S.C. 6(b)) is 
amended--
            (1) in the third sentence--
                    (A) by striking ``(1)'' and ``(2)'' and inserting 
                ``(A)'' and ``(B)'', respectively; and
                    (B) by striking ``No rule'' and inserting ``Except 
                as provided in paragraph (2), no rule'';
            (2) by inserting ``(1)'' after ``(b)''; and
            (3) by adding at the end the following:
    ``(2)(A) The Commission shall consult with a foreign government, 
foreign futures authority, or department, agency, governmental body, or 
regulatory organization empowered by a foreign government to regulate a 
board of trade, exchange, or market located outside the United States, 
or a territory or possession of the United States, that has 1 or more 
established delivery points in the United States, or a territory or 
possession of the United States, for a contract of sale of a commodity 
for future delivery that is made or will be made on or subject to the 
rules of the board of trade, exchange, or market.
    ``(B) In the consultations, the Commission shall endeavor to secure 
adequate assurances, through memoranda of understanding or any other 
means the Commission considers appropriate, that the presence of the 
delivery points will not create the potential for manipulation of the 
price, or any other disruption in trading, of a contract of sale of a 
commodity for future delivery traded on or subject to the rules of a 
contract market, or a commodity, in interstate commerce.
    ``(C) Any warehouse or other facility housing an established 
delivery point in the United States, or a territory or possession of 
the United States, described in subparagraph (A) shall--
            ``(i) keep books, records, and other information specified 
        by the Commission pertaining to all transactions and positions 
        in all contracts made or carried on the foreign board of trade, 
        exchange, or market in such form and manner and for such period 
        as may be required by the Commission;
            ``(ii) file such reports regarding the transactions and 
        positions with the Commission as the Commission may specify; 
        and
            ``(iii) keep the books and records open to inspection by a 
        representative of the Commission or the United States 
        Department of Justice.''.

SEC. 5. EXEMPTION AUTHORITIES.

    Section 4 of the Commodity Exchange Act (7 U.S.C. 6(c)) is amended 
by adding at the end the following:
    ``(e) Private Transaction Exemption.--
            ``(1) In general.--Notwithstanding subsection (c)(1), to 
        the extent, if any, that an agreement, contract, or transaction 
        (or class thereof) is otherwise subject to this Act, it shall 
        be exempt from all provisions of this Act and any person or 
        class of persons offering, entering into, rendering advice, or 
        rendering other services with respect to the agreement, 
        contract, or transaction (or class thereof), shall be exempt 
        for the activity from all provisions of this Act (except in 
        each case the provisions of sections 4b and 4o, any antifraud 
        provision adopted by the Commission pursuant to section 4c(b), 
        and the provisions of section 6(c) and 9(a)(2) to the extent 
        the provisions prohibit manipulation of the market price of any 
        commodity in interstate commerce for future delivery on or 
        subject to the rules of any contract market) if--
                    ``(A) the agreement, contract, or transaction (or 
                class thereof) is entered into only between appropriate 
                persons at the time the persons enter into the 
                agreement, contract, or transaction (or class thereof);
                    ``(B) the agreement, contract, or transaction (or 
                class thereof) is not part of a fungible class of 
                agreements, contracts, or transactions that are 
                standardized as to their material economic terms;
                    ``(C) the creditworthiness of any party having an 
                actual or potential obligation under the agreement, 
                contract, or transaction (or class thereof) would be a 
                material consideration in entering into or determining 
                the terms of the agreement, contract, or transaction 
                (or class thereof), including pricing, cost, or credit 
                enhancement terms of the agreement, contract, or 
                transaction (or class thereof); and
                    ``(D) the agreement, contract, or transaction (or 
                class thereof) is not entered into and traded on or 
                through a multilateral transaction execution facility.
            ``(2) Exceptions.--Paragraph (1) shall not preclude--
                    ``(A) arrangements or facilities between parties to 
                an agreement, contract, or transaction (or class 
                thereof) that provide for netting of payment 
                obligations resulting from the agreement, contract, or 
                transaction (or class thereof);
                    ``(B) arrangements or facilities among parties to 
                an agreement, contract, or transaction (or class 
                thereof) that provide for netting of payments resulting 
                from the agreement, contract or transaction (or class 
                thereof); or
                    ``(C) the prohibition of transactions covered under 
                section 32.2 of title 17, Code of Federal Regulations.
            ``(3) Definition of appropriate person.--In paragraph (1), 
        the term `appropriate person' means--
                    ``(A) a person (as defined in subsection (c)(3)); 
                or
                    ``(B) a natural person whose total assets exceed 
                $10,000,000.
            ``(4) Hybrid instrument exemption.--
                    ``(A) Definitions.--In this paragraph:
                            ``(i) Commodity-dependent component.--The 
                        term `commodity-dependent component' means a 
                        component of a hybrid instrument, the payment 
                        of which results from indexing to, or 
                        calculation by reference to, the price of a 
                        commodity.
                            ``(ii) Commodity-dependent value.--The term 
                        `commodity-dependent value' means the value of 
                        a commodity-dependent component, which when 
                        decomposed into an option payout or payouts, is 
                        measured by the absolute net value of the put 
                        option premia with strike prices less than or 
                        equal to the reference price plus the absolute 
                        net value of the call option premia with strike 
                        prices greater than or equal to the reference 
                        price, calculated as of the time of issuance of 
                        the hybrid instrument.
                            ``(iii) Commodity-independent component.--
                        The term `commodity-independent component' 
                        means the component of a hybrid instrument, the 
                        payments of which do not result from indexing 
                        to, or calculation by reference to, the price 
                        of a commodity.
                            ``(iv) Commodity-independent value.--The 
                        term `commodity-independent value' means the 
                        present value of the payments attributable to 
                        the commodity-independent component calculated 
                        as of the time of issuance of the hybrid 
                        instrument.
                            ``(v) Hybrid instrument.--The term `hybrid 
                        instrument' means an equity or debt security or 
                        depository instrument with 1 or more commodity-
                        dependent components that have payment features 
                        similar to commodity futures or commodity 
                        option contracts or combinations thereof.
                            ``(vi) Option premium.--The term `option 
                        premium' means the value of an option on the 
                        referenced commodity of the hybrid instrument, 
                        calculated by using--
                                    ``(I) the same method as that used 
                                to determine the issue price of the 
                                instrument; or
                                    ``(II) a commercially reasonable 
                                method appropriate to the instrument 
                                being priced where the premia are not 
                                explicitly calculated in determining 
                                the issue price of the instrument.
                            ``(vii) Reference price.--The term 
                        `reference price' means a price nearest the 
                        current spot or forward price, whichever is 
                        used to price the instrument, at which a 
                        commodity-dependent payment becomes non-zero, 
                        or, in the case in which 2 potential reference 
                        prices exist, the price that results in the 
                        greatest commodity-dependent value.
                    ``(B) Exemption.--Notwithstanding subsection 
                (c)(1), a hybrid instrument is exempt from all 
                provisions of this Act, and any person or class of 
                persons offering, entering into, or rendering advice or 
                other services with respect to the hybrid instrument is 
                exempt for such activity from all provisions of this 
                Act, if the following terms and conditions are 
                satisfied:
                            ``(i) The instrument is--
                                    ``(I) an equity or debt security 
                                (within the meaning of section 2(1) of 
                                the Securities Act of 1933 (15 U.S.C. 
                                77b); or
                                    ``(II) a demand deposit, time 
                                deposit or transaction account within 
                                the meaning of subsections (b)(1), 
                                (c)(1), and (e) of section 204.2 of 
                                title 12, Code of Federal Regulations, 
                                respectively, that are offered by--
                                            ``(aa) an insured 
                                        depository institution (as 
                                        defined in section 3 of the 
                                        Federal Deposit Insurance Act 
                                        (12 U.S.C. 1813));
                                            ``(bb) an insured credit 
                                        union (as defined in section 
                                        101 of the Federal Credit Union 
                                        Act (12 U.S.C. 1752)); or
                                            ``(cc) a Federal or State 
                                        branch or agency of a foreign 
                                        bank (as defined in section 1 
                                        of the International Banking 
                                        Act of 1978 (12 U.S.C. 3101)).
                            ``(ii) The sum of the commodity-dependent 
                        values of the commodity-dependent components is 
                        less than the commodity-independent value of 
                        the commodity-independent component.
                            ``(iii) Provided that--
                                    ``(I) an issuer must receive full 
                                payment of the purchase price of the 
                                hybrid instrument, and a purchaser or 
                                holder of a hybrid instrument may not 
                                be required to make additional out-of-
                                pocket payments to the issuer during 
                                the life of the instrument or at 
                                maturity;
                                    ``(II) the instrument is not 
                                marketed as a futures contract or a 
                                commodity option or, except to the 
                                extent necessary to describe the 
                                functioning of the instrument or to 
                                comply with applicable disclosure 
                                requirements, as having the 
                                characteristics of a futures contract 
                                or a commodity option; and
                                    ``(III) the instrument does not 
                                provide for settlement in the form of a 
                                delivery instrument that is specified 
                                as such in the rules of a designated 
                                contract market.
                            ``(iv) The instrument is initially issued 
                        or sold subject to applicable Federal or State 
                        securities or banking laws to persons who are 
                        permitted under the laws to purchase or enter 
                        into the hybrid instrument.
                    ``(C) Provision not exempted.--The prohibition of 
                transactions covered under section 32.2 of title 17, 
                Code of Federal Regulations, shall apply to a hybrid 
                instrument under this paragraph.
            ``(5) Application of exemptions.--Subsection (c) shall not 
        restrict the authority of the Commission to grant an exemption 
        under this subsection that is in addition to or independent of 
        an exemption provided under paragraph (1) or (4). An exemption 
        provided under subsection (c) may not be applied in a manner 
        that restricts the exemption provided under either paragraph 
        (1) or (4).
            ``(6) Exemption by commission.--
                    ``(A) In general.--The Commission may exempt an 
                agreement, contract, or transaction (or class thereof), 
                or a hybrid instrument under this subsection, to the 
                extent that the agreement, contract, or transaction (or 
                class thereof), or hybrid instrument, may be subject to 
                this Act.
                    ``(B) No presumption created.--An exemption under 
                this subsection shall not create a presumption that the 
                exempted agreement, contract, or transaction (or class 
                thereof), or hybrid instrument, is subject to this 
                Act.''.

SEC. 6. EXEMPTION FOR PROFESSIONAL MARKETS.

    Section 4 of the Commodity Exchange Act (7 U.S.C. 6) (as amended by 
section 5) is amended by adding at the end the following:
    ``(f) Exemption for Professional Markets.--
            ``(1) Definitions.--In this subsection:
                    ``(A) Appropriate person.--The term `appropriate 
                person' means--
                            ``(i) a person (as defined in subsection 
                        (c)(3)); or
                            ``(ii) a natural person whose total assets 
                        exceed $10,000,000.
                    ``(B) Professional market.--The term `professional 
                market' means a market--
                            ``(i) that is traded on a board of trade 
                        that is otherwise designated by the Commission 
                        as a contract market; and
                            ``(ii) on which only an appropriate person 
                        (as defined in subparagraph (A)) may enter into 
                        an agreement, contract, or transaction (or 
                        class thereof) on the market.
            ``(2) Exemption.--
                    ``(A) In general.--An agreement, contract, or 
                transaction (or class thereof) that is traded on a 
                professional market and is, or may be, subject to this 
                Act shall be exempt from this Act.
                    ``(B) Contracts not exempted.--The exemption 
                provided under subparagraph (A) shall not apply to--
                            ``(i) any individual agreement, contract, 
                        or transaction that has been transacted for the 
                        product involved as of the effective date of 
                        this subsection; or
                            ``(ii) an agreement, contract, or 
                        transaction (or class thereof) that involves an 
                        agricultural commodity referred to in section 
                        1a.
            ``(3) Applicability of certain provisions.--An agreement, 
        contract, or transaction (or class thereof) for which an 
        exemption is provided under paragraph (2)(A), shall, to the 
        extent applicable, in each case be subject to--
                    ``(A) sections 2(a)(1)(B), 4b, and 4o;
                    ``(B) the provisions of sections 6(c) and 9(a)(2) 
                to the extent the provisions prohibit manipulation of 
                the market price of any commodity in interstate 
                commerce for future delivery on or subject to the rules 
                of a contract market;
                    ``(C) prohibitions adopted by the Commission 
                against fraud or manipulation under section 4c(b); and
                    ``(D) the powers of the Commission to respond to 
                emergencies as provided in section 8a(9).''.

SEC. 7. CONTRACT DESIGNATION.

    (a) In General.--Section 5 of the Commodity Exchange Act (7 U.S.C. 
7) is amended--
            (1) by striking the matter preceding paragraph (1) and 
        inserting the following:

``SEC. 5. DESIGNATION OF A BOARD OF TRADE AS A CONTRACT MARKET.

    ``(a) In General.--The Commission shall designate a board of trade 
as a contract market if the board of trade complies with and carries 
out the following conditions and requirements:'';
            (2) by striking paragraph (7);
            (3) by redesignating paragraph (8) as paragraph (7); and
            (4) by adding at the end the following:
    ``(b) Existing and Future Designations.--
            ``(1) In general.--If a board of trade is designated as a 
        contract market by the Commission under subsection (a) and 
        section 6, the board of trade shall retain the designation for 
        all existing or future contracts, unless the Commission 
        suspends or revokes the designation or the board of trade 
        relinquishes the designation.
            ``(2) Existing designations.--A board of trade that has 
        been designated as a contract market as of the date of 
        enactment of this subsection shall retain the designation 
        unless the Commission finds that a violation of this Act or a 
        rule, regulation, or order of the Commission by the contract 
        market justifies suspension or revocation of the designation 
        under section 6(b), or the board of trade relinquishes the 
        designation.
    ``(c) New Contract Submissions.--Except as provided in subsection 
(e), a board of trade that has been designated as a contract market 
under subsection (a) shall submit to the Commission all rules that 
establish the terms and conditions of a new contract of sale in 
accordance with subsection (d) (referred to in this section as a `new 
contract'), other than a rule relating to the setting of levels of 
margin and other rules that the Commission may specify by regulation.
    ``(d) Procedures for New Contracts.--
            ``(1) Required submission to commission.--Except as 
        provided in subsection (e), a contract market shall submit new 
        contracts to the Commission in accordance with subsection (c).
            ``(2) Effectiveness of new contracts.--A contract market 
        may make effective a new contract and may implement trading in 
        the new contract--
                    ``(A) not earlier than 10 business days after the 
                receipt of the new contract by the Commission; or
                    ``(B) earlier if authorized by the Commission by 
                rule, regulation, order, or written notice.
            ``(3) Notice to contract market.--The new contract shall 
        become effective and may be traded on the contract market, 
        unless, within the 10-business-day period beginning on the date 
        of the receipt of the new contract by the Commission, the 
        Commission notifies the contract market in writing--
                    ``(A) of the determination of the Commission that 
                the proposed new contract appears to--
                            ``(i) violate a specific provision of this 
                        Act (including paragraphs (1) through (7) of 
                        section 5(a)) or a rule, regulation, or order 
                        of the Commission; or
                            ``(ii) be contrary to the public interest; 
                        and
                    ``(B) that the Commission intends to review the new 
                contract.
            ``(4) Notice in the federal register.--Notwithstanding the 
        determination of the Commission to review a new contract under 
        paragraph (3) and except as provided in subsection (e), the 
        contract market may make the new contract effective, and may 
        implement trading in the new contract, on a date that is not 
        earlier than 15 business days after the determination of the 
        Commission to review the new contract unless within the period 
        of 15 business days the Commission institutes proceedings to 
        disapprove the new contract by providing notice in the Federal 
        Register of the information required under paragraph (5)(A).
            ``(5) Disapproval proceedings.--
                    ``(A) Notice of proposed violations.--If the 
                Commission institutes proceedings to determine whether 
                to disapprove a new contract under this subsection, the 
                Commission shall provide the contract market with 
                written notice, including an explanation and analysis 
                of the substantive basis for the proposed grounds for 
                disapproval, of what the Commission has reason to 
                believe are the grounds for disapproval, including, as 
                applicable--
                            ``(i) the 1 or more specific provisions of 
                        this Act or a rule, regulation, or order of the 
                        Commission that the Commission has reason to 
                        believe the new contract violates or, if the 
                        new contract became effective, would violate; 
                        or
                            ``(ii) the 1 or more specific public 
                        interests to which the Commission has reason to 
                        believe the new contract is contrary, or if the 
                        new contract became effective would be 
                        contrary.
                    ``(B) Disapproval proceedings and determination.--
                            ``(i) Opportunity to participate; 
                        hearing.--Before deciding to disapprove a new 
                        contract, the Commission shall give interested 
                        persons (including the board of trade) an 
                        opportunity to participate in the disapproval 
                        proceedings through the submission of written 
                        data, views, or arguments following appropriate 
                        notice and an opportunity for a hearing on the 
                        record before the Commission.
                            ``(ii) Determination of disapproval.--At 
                        the conclusion of the disapproval proceeding, 
                        the Commission shall determine whether to 
                        disapprove the new contract.
                            ``(iii) Grounds for disapproval.--The 
                        Commission shall disapprove the new contract if 
                        the Commission determines that the new 
                        contract--
                                    ``(I) violates this Act or a rule, 
                                regulation, or order of the Commission; 
                                or
                                    ``(II) is contrary to public 
                                interest.
                            ``(iv) Specifications for disapproval.--
                        Each disapproval determination shall specify, 
                        as applicable--
                                    ``(I) the 1 or more specific 
                                provisions of this Act or a rule, 
                                regulation, or order of the Commission, 
                                that the Commission determines the new 
                                contract violates or, if the new 
                                contract became effective, would 
                                violate; or
                                    ``(II) the 1 or more specific 
                                public interests to which the 
                                Commission determines the new contract 
                                is contrary, or if the new contract 
                                became effective would be contrary.
                    ``(C) Failure to timely complete disapproval 
                determination.--If the Commission does not conclude a 
                disapproval proceeding as provided in subparagraph (B) 
                for a new contract by the date that is 120 calendar 
                days after the Commission institutes the proceeding, 
                the new contract may be made effective, and trading in 
                the new contract may be implemented, by the contract 
                market until such time as the Commission disapproves 
                the new contract in accordance with this paragraph.
                    ``(D) Appeals.--A board of trade that has been 
                subject to disapproval of a new contract by the 
                Commission under this subsection shall have the right 
                to an appeal of the disapproval to the court of appeals 
                as provided in section 6(b).
            ``(6) Contract market deemed designated.--A board of trade 
        shall be deemed to be designated a contract market for a new 
        contract of sale for future delivery when the new contract 
        becomes effective and trading in the new contract begins.
    ``(e) Required Interagency Review.--Notwithstanding subsection (d), 
no board of trade may make effective a new contract (or option on the 
contract) that is subject to the requirements and procedures of clauses 
(ii) through (v) of paragraph (1)(B), and paragraph (8)(B)(ii), of 
section 2(a) until the requirements and procedures are satisfied and 
carried out.''.
    (b) Conforming Amendment.--Section 6(a) of the Commodity Exchange 
Act (7 U.S.C. 8(a)) is amended in the first sentence by striking ``Any 
board of trade desiring'' and inserting ``A board of trade that has not 
obtained any designation as a contract market for a contract of sale 
for a commodity under section 5 that desires''.

SEC. 8. DELIVERY BY FEDERALLY LICENSED WAREHOUSES.

    Section 5a(a) of the Commodity Exchange Act (7 U.S.C. 7a(a)) is 
amended by striking paragraph (7) and inserting the following:
            ``(7) Repealed;''.

SEC. 9. SUBMISSION OF RULES TO COMMISSION.

    Section 5a(a) of the Commodity Exchange Act (7 U.S.C. 7a(a)(12)) is 
amended by striking paragraph (12) and inserting the following:
            ``(12)(A)(i) except as otherwise provided in this 
        paragraph, submit to the Commission all bylaws, rules, 
        regulations, and resolutions (collectively referred to in this 
        subparagraph as `rules') made or issued by the contract market, 
        or by the governing board or committee of the contract market 
        (except those relating to the setting of levels of margin, 
        those submitted pursuant to section 5 or 6(a), and those the 
        Commission may specify by regulation) and may make a rule 
        effective not earlier than 10 business days after the receipt 
        of the submission by the Commission or earlier, if approved by 
        the Commission by rule, regulation, order, or written notice, 
        unless, within the 10-business-day period, the Commission 
        notifies the contract market in writing of its determination to 
        review such rules for disapproval and of the specific sections 
        of this Act or the regulations of the Commission that the 
        Commission determines the rule would violate. The determination 
        to review such rules for disapproval shall not be delegable to 
        any employee of the Commission. Not later than 45 calendar days 
        before disapproving a rule of major economic significance (as 
        determined by the Commission), the Commission shall publish a 
        notice of the rule in the Federal Register. The Commission 
        shall give interested persons an opportunity to participate in 
        the disapproval process through the submission of written data, 
        views, or arguments. The determination by the Commission 
        whether a rule is of major economic significance shall be final 
        and not subject to judicial review. The Commission shall 
        disapprove, after appropriate notice and opportunity for 
        hearing (including an opportunity for the contract market to 
        have a hearing on the record before the Commission), a rule 
        only if the Commission determines the rule at any time to be in 
        violation of this Act or a regulation of the Commission. If the 
        Commission institutes proceedings to determine whether a rule 
        should be disapproved pursuant to this paragraph, the 
        Commission shall provide the contract market with written 
        notice of the proposed grounds for disapproval, including the 
        specific sections of this Act or the regulations of the 
        Commission that would be violated. At the conclusion of the 
        proceedings, the Commission shall determine whether to 
        disapprove the rule. Any disapproval shall specify the sections 
        of this Act or the regulations of the Commission that the 
        Commission determines the rule has violated or, if effective, 
        would violate. If the Commission does not institute disapproval 
        proceedings with respect to a rule within 45 calendar days 
        after receipt of the rule by the Commission, or if the 
        Commission does not conclude a disapproval proceeding with 
        respect to a rule within 120 calendar days after receipt of the 
        rule by the Commission, the rule may be made effective by the 
        contract market until such time as the Commission disapproves 
        the rule in accordance with this paragraph.
            ``(B)(i) The Commission shall issue regulations to specify 
        the terms and conditions under which, in an emergency as 
        defined by the Commission, a contract market may, by a two-
        thirds vote of the governing board of the contract market, make 
        a rule (referred to in this subparagraph as an `emergency 
        rule') immediately effective without compliance with the 10-day 
        notice requirement under subparagraph (A), if the contract 
        market makes every effort practicable to notify the Commission 
        of the emergency rule, and provide a complete explanation of 
        the emergency involved, prior to making the emergency rule 
        effective.
            ``(ii) If the contract market does not provide the 
        Commission with the requisite notification and explanation 
        before making the emergency rule effective, the contract market 
        shall provide the Commission with the notification and 
        explanation at the earliest practicable date.
            ``(iii) The Commission may delegate the power to receive 
        the notification and explanation to such individuals as the 
        Commission determines necessary and appropriate.
            ``(iv) Not later than 10 days after the receipt from a 
        contract market of notification of such an emergency rule and 
        an explanation of the emergency involved, or as soon as 
        practicable, the Commission shall determine whether to suspend 
        the effect of the rule pending review by the Commission under 
        the procedures of subparagraph (A).
            ``(v)(I) The Commission shall submit a report on the 
        determination of the Commission on the emergency rule under 
        clause (iv), and the basis for the determination, to the 
        affected contract market, the Committee on Agriculture of the 
        House of Representatives, and the Committee on Agriculture, 
        Nutrition, and Forestry of the Senate.
            ``(II) If the report is submitted more than 10 days after 
        the Commission's receipt of notification of the emergency rule 
        from a contract market, the report shall explain why submission 
        within the 10-day period was not practicable.
            ``(III) A determination by the Commission to suspend the 
        effect of a rule under this subparagraph shall be subject to 
        judicial review on the same basis as an emergency determination 
        under section 8a(9).
            ``(IV) Nothing in this paragraph limits the authority of 
        the Commission under section 8a(9);''.

SEC. 10. AUDIT TRAIL.

    Section 5a(b) of the Commodity Exchange Act (7 U.S.C. 7a(b)) is 
amended--
            (1) in paragraph (3), by inserting ``selected by the 
        contract market'' after ``means'' each place it appears; and
            (2) by adding at the end the following:
    ``(7) The requirements of this subsection establish performance 
standards and do not mandate the use of a specific technology to 
satisfy the requirements.''.

SEC. 11. CONSIDERATION OF EFFICIENCY, COMPETITION, RISK MANAGEMENT, AND 
              ANTITRUST LAWS.

    Section 15 of the Commodity Exchange Act (7 U.S.C. 19) is amended--
            (1) by striking ``Sec. 15. The Commission'' and inserting 
        the following:
    ``Sec. 15. (a)(1) Prior to adopting a rule or regulation authorized 
by this Act or adopting an order (except as provided in subsection 
(b)), the Commission shall consider the costs and benefits of the 
action of the Commission.
    ``(2) The costs and benefits of the proposed Commission action 
shall be evaluated in light of considerations of protection of market 
participants, the efficiency, competitiveness, and financial integrity 
of futures markets, price discovery, sound risk management practices, 
and other appropriate factors, as determined by the Commission.
    ``(b) Subsection (a) shall not apply to the following actions of 
the Commission:
            ``(1) An order that initiates, is part of, or is the result 
        of an adjudicatory or investigative process of the Commission.
            ``(2) An emergency action.
            ``(3) A finding of fact regarding compliance with a 
        requirement of the Commission.
    ``(c) The Commission''; and
            (2) by striking ``requiring or approving'' and inserting 
        ``requiring, reviewing, or disapproving''.

SEC. 12. DISCIPLINARY AND ENFORCEMENT ACTIVITIES.

    (a) In General.--It is the sense of Congress that the Commodity 
Futures Trading Commission should--
            (1) to the extent practicable, avoid unnecessary 
        duplication of effort in pursuing disciplinary and enforcement 
        actions if adequate self-regulatory actions have been taken by 
        contract markets and registered futures associations; and
            (2) retain an oversight and disciplinary role over the 
        self-regulatory activities by contract markets and registered 
        futures associations in a manner that is sufficient to 
        safeguard financial and market integrity and the public 
        interest.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the Commission shall submit a report to the Committee on 
Agriculture of the House of Representatives and the Committee on 
Agriculture, Nutrition, and Forestry of the Senate that evaluates the 
effectiveness of the enforcement activities of the Commission, 
including an evaluation of the experience of the Commission in 
preventing, deterring, and disciplining violations of the Commodity 
Exchange Act (7 U.S.C. 1 et seq.) and Commission regulations involving 
fraud against the public through the bucketing of orders and similar 
abuses.

SEC. 13. DELEGATION OF FUNCTIONS BY THE COMMISSION.

    (a) In General.--It is the sense of Congress that the Commodity 
Futures Trading Commission should--
            (1) review its rules and regulations that delegate any of 
        its duties or authorities under the Commodity Exchange Act (7 
        U.S.C. 1 et seq.) to contract markets or registered futures 
        associations;
            (2) consistent with the public interest and law, determine 
        which additional functions, if any, performed by the Commission 
        should be delegated to contract markets or registered futures 
        associations; and
            (3) establish procedures (such as spot checks, random 
        audits, reporting requirements, pilot projects, or other means) 
        to ensure adequate performance of the additional functions that 
        are delegated to contract markets or registered futures 
        associations.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the Commission shall report the results of its review and 
actions under subsection (a) to the Committee on Agriculture of the 
House of Representatives and the Committee on Agriculture, Nutrition, 
and Forestry of the Senate.

SEC. 14. TECHNICAL AND CONFORMING AMENDMENTS.

    (a) Section 1a(13)(B) of the Commodity Exchange Act (7 U.S.C. 
1a(13)(B)) is amended by striking ``state'' and inserting ``State''.
    (b) Section 2(a)(1)(B)(iv)(I) of the Commodity Exchange Act (7 
U.S.C. 2a(iv)(I)) is amended in the last sentence by striking ``section 
6 of this Act'' and inserting ``section 6(a)''.
    (c) Section 4(c)(3)(H) of the Commodity Exchange Act (7 U.S.C. 
6(c)(3)(H)) is amended by striking ``state'' and inserting ``State''.
    (d) Section 4a(e) of the Commodity Exchange Act (7 U.S.C. 6a(e)) is 
amended in the last sentence by striking ``section 9(c) of this Act'' 
and inserting ``section 9(a)(5)''.
    (e) Section 4c(d)(2)(A)(iv) of the Commodity Exchange Act (7 U.S.C. 
6c(d)(2)(A)(iv)) is amended by striking ``78c(a)(12)),'' and inserting 
``78c(a)(12))),''.
    (f) Section 4f(c)(4)(B)(i) of the Commodity Exchange Act (7 U.S.C. 
6f(c)(4)(B)(i)) is amended--
            (1) by striking ``compiled'' and inserting ``complied''; 
        and
            (2) by striking ``1817(a),'' and inserting ``1817(a)),''.
    (g) Section 5a(a) of the Commodity Exchange Act (7 U.S.C. 7a(a)) is 
amended--
            (1) in paragraph (11)(ii), by striking the second semicolon 
        at the end;
            (2) in paragraph (15)(C), by striking ``categories as'' and 
        inserting ``categories as--''; and
            (3) in paragraph (17)--
                    (A) in subparagraph (A), by striking ``minimum, 
                that'' and inserting ``minimum, that--''; and
                    (B) in subparagraph (B)(ii), by striking ``affect'' 
                and inserting ``effect''.
    (h) Sections 5b, 6(b), 6(c), 6(d), and 13(c) of the Commodity 
Exchange Act (7 U.S.C. 7b, 8(b), 9, 13b, and 13c(c)) are amended by 
striking ``or the Commission'' after ``the Commission'' each place it 
appears.
    (i) Section 6(c) of the Commodity Exchange Act (7 U.S.C. 9) is 
amended in the tenth sentence by inserting a comma after ``such 
violation''.
    (j) Section 6a(a) of the Commodity Exchange Act (7 U.S.C. 10a(a)) 
is amended in the second sentence by striking ``Such Commission'' and 
inserting ``The Commission''.
    (k) Section 8 of the Commodity Exchange Act (7 U.S.C. 12) is 
amended--
            (1) in subsection (a)(1)(B), by striking ``in any 
        receivership proceeding commenced involving a receiver 
        appointed in a judicial proceeding by the United States or the 
        Commission'' and inserting ``in any receivership proceeding 
        involving a receiver appointed in a judicial proceeding 
        commenced by the United States or the Commission''; and
            (2) in the last sentence of subsection (e), by striking 
        ``authority.'' and inserting ``authority''.
    (l) Section 8a of the Commodity Exchange Act (7 U.S.C. 12a) is 
amended--
            (1) in paragraph (2)--
                    (A) in subparagraph (B), by striking ``the 
                provisions of paragraph (3) of this section'' and 
                inserting ``the provisions of this paragraph or 
                paragraph (3)'';
                    (B) in subparagraph (C), by adding a semicolon at 
                the end;
                    (C) in subparagraph (D), by inserting ``pleaded 
                guilty to or has'' after ``such person has''; and
                    (D) in subparagraph (E), by striking ``Investors'' 
                and inserting ``Investor'';
            (2) in paragraph (3)--
                    (A) in subparagraph (B), by striking ``Investors'' 
                and inserting ``Investor'';
                    (B) by striking subparagraph (D) and inserting the 
                following:
                    ``(D) the person has pleaded guilty to or has been 
                convicted of a felony other than a felony of the type 
                specified in paragraph (2)(D), or has pleaded guilty to 
                or has been convicted of a felony of the type specified 
                in paragraph (2)(D) more than 10 years preceding the 
                filing of the application;''; and
                    (C) in subparagraph (H), by striking ``or has been 
                convicted in a State court,'' and inserting ``or has 
                pleaded guilty to, or has been convicted, in a State 
                court,''; and
            (3) in paragraph (11)(F), by striking ``section 6(b)'' and 
        inserting ``section 6(c)''.
    (m) Section 8c(a)(2) of the Commodity Exchange Act (7 U.S.C. 
12c(a)(2)) is amended in the second sentence by inserting after 
``denied access,'' the following: ``to any other exchange, to any other 
registered futures association,''.
    (n) Section 8e(d)(1) of the Commodity Exchange Act (7 U.S.C. 
12e(d)(1)) is amended by striking ``section 6b'' and inserting 
``section 6(c)''.
    (o) Section 9 of the Commodity Exchange Act (7 U.S.C. 13) is 
amended--
            (1) by redesignating subsection (f) as subsection (e); and
            (2) in subsection (e)(1) (as so redesignated), by striking 
        the period at the end and inserting ``; or''.
    (p) Section 12(b) of the Commodity Exchange Act (7 U.S.C. 16(b)) is 
amended by aligning the margin of paragraph (4) so as to align with 
paragraph (3).
    (q) Section 14(a) of the Commodity Exchange Act (7 U.S.C. 18(a)) is 
amended by aligning the margin of paragraph (2) so as to align with 
subsection (b).
    (r) Section 17 of the Commodity Exchange Act (7 U.S.C. 21) is 
amended--
            (1) in subsection (b)--
                    (A) in paragraph (9)(D), by striking the semicolon 
                at the end and inserting a period;
                    (B) in paragraph (10)(C)(ii), by striking ``and'' 
                at the end;
                    (C) in paragraph (11), by striking the period at 
                the end and inserting a semicolon;
                    (D) in paragraph (12)--
                            (i) by striking ``(12)(A)'' and inserting 
                        ``(12)''; and
                            (ii) by striking the period at the end and 
                        inserting ``; and''; and
                    (E) in paragraph (13), by striking ``A major'' and 
                inserting ``a major'';
            (2) in subsection (h)(1)--
                    (A) in the first sentence, by inserting after 
                ``person associated with a member,'' the following: 
                ``takes any membership action against any member or 
                associate responsibility action against any person 
                associated with a member,''; and
                    (B) by adding at the end the following: ``The 
                association shall make public its findings and the 
                reasons for the association action (including the 
                action and penalty imposed) in any action described in 
                the first sentence, except that evidence obtained in 
                the action shall not be disclosed other than to an 
                exchange, the Commission, or the member or person who 
                is being disciplined, who is subject to a member 
                responsibility action, who is being denied admission to 
                the futures association, or who is being barred from 
                associating with members of the futures association.'';
            (3) in the last sentence of subsection (j)--
                    (A) by striking ``one hundred and eighty days'' and 
                inserting ``45 calendar days''; and
                    (B) by striking ``one year'' and inserting ``120 
                calendar days''; and
            (4) by redesignating subsection (q) (as added by section 
        206(b)(2) of the Futures Trading Practices Act of 1992 (Public 
        Law 102-546)) as subsection (r) and moving such subsection to 
        the end of the section.
                                 <all>